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Nonresident Alien Tax Compliance. Tuesday, February 9, 2010 Mary Alice Boyd. Agenda. Overview of the Tax System Federal Income Taxes State Income Taxes Social Security/Medicare Taxes Types of Income Treaty Benefits Procedures Best Practices Resources Questions.

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Nonresident Alien Tax Compliance

Tuesday, February 9, 2010

Mary Alice Boyd

  • Overview of the Tax System
  • Federal Income Taxes
  • State Income Taxes
  • Social Security/Medicare Taxes
  • Types of Income
  • Treaty Benefits
  • Procedures
  • Best Practices
  • Resources
  • Questions
overview of the tax system
Overview of the Tax System
  • SystemResidency Status
  • US Tax System US Citizens
  • Lawful Permanent
  • Residents
  • Resident Alien for Tax
  • Purposes
  • Nonresident Alien Tax Nonresident Alien for Tax
  • System Purposes
federal income taxes
Federal Income Taxes

All US payments to NRAs are subject to 30%

withholding except for:

  • Wages subject to wage withholding
  • 14% for non-service scholarships/fellowships
  • (qualifying F, M, J, or Q status only)
  • Exceptions under the tax code or a treaty
state income taxes
State Income Taxes
  • Non-wage compensation of more than $1,500
  • during the calendar year to a nonresident
  • contractor for personal services performed in NC
  • in connection with a performance, an
  • entertainment or athletic event, a speech, or the
  • creation of a film, radio, or television program, you
  • must withhold NC income tax at the rate of 4%
  • from this non-wage compensation
social security medicare taxes
Social Security/Medicare Taxes
  • Apply to compensation for employment services

Exceptions for Social Security/Medicare


  • Student FICA Exception
    • Students working on the campus of the institution where
    • they are enrolled and regularly attending classes
    • Same rules for US citizens
  • NRA FICA Exception
    • Nonresident aliens
    • In F-1, J-1, M-1, or Q-1/Q-2 status
    • Engaged in employment consistent with the
    • purpose of the visit
  • Totalization agreement exception with a
  • certificate of coverage
types of income and what income is taxable
Types of income and what income is taxable?
  • Compensation
  • Dependent
    • Wages / Salary / Stipend Taxable / Treaty Exempt
    • Travel Reimbursement / Payment “Accountable Plan”
  • Independent
    • Ind Per Services / Consulting Fees Taxable / Treaty Exempt
    • Honorarium / Guest Speaker Fees Taxable / Treaty Exempt
    • Travel Reimbursement / Payment “Accountable Plan”
  • Scholarships/Fellowships
    • Tuition / Fees Excluded under Section 117
    • Room / Board Taxable / Treaty Exempt
    • Stipend Taxable / Treaty Exempt
    • Book Allowances Excluded under Section 117
    • Travel Reimbursement / Payment Taxable / Treaty Exempt
  • Prizes and Awards Taxable
  • Royalties Taxable / Lower Treaty Rate
  • Dependent Wages
    • Subject to graduated withholding rates with restrictions
      • Unless exempt from withholding under a treaty
  • Independent Wages
    • Subject to 30% withholding
      • Unless exempt from withholding under a treaty
honorarium payments
Honorarium Payments
  • 9-5-6 Rule
    • Covered aliens may accept an honorarium payment for
    • usual academic activity
      • lasting not longer than 9 days at any single institution,
      • and
      • If the alien has not accepted such payment from more
      • than 5 institutions
      • In the previous 6-month period
    • Covered aliens: B-1, B-2, VWB, VWT, aliens from Canada
    • and aliens with valid border-crossing card
are travel expenses taxable
Are travel expenses taxable?
  • The “Accountable Plan” rules only apply when there is
  • a compensatory relationship
    • Employees and Independent Contractors who
    • receive compensation
  • The “Accountable Plan” rules do not apply if there is
  • not a compensatory relationship
    • Students and scholars who receive non-service
    • scholarships and fellowships
other payments
Other Payments
  • Scholarships and Fellowships
    • Subject to14% withholding to F, J, M and Q status
    • individuals
      • Unless exempt from withholding under a treaty or
      • the Internal Revenue Code
  • Prizes and Awards
    • Subject to 30% withholding
treaty benefit eligibility
Treaty Benefit Eligibility
  • The US has tax treaties with over 60 countries
  • Treaties offer tax exemptions for foreign nationals
  • who were or are tax residents (not citizens) of a
  • treaty country and meet specific criteria as defined
  • by the treaty
  • Many foreign nationals understand and expect
  • these benefits
considerations when granting treaty benefits
Considerations When Granting Treaty Benefits
  • US tax status: NRA or RA
  • Social Security Number or ITIN
  • Country of tax residency
  • Primary purpose of visit as evidenced by
    • DS-2019 for J exchange visitors
    • I-129 petition and letters for H-1B, O-1, Q
    • I-20 for F and M visitors
    • Conducting research, teaching, training, other
    • paid activities
  • Status of the organization (educational, research,
  • medical, etc.)
  • Type of income paid
procedures for paying nonresident aliens
Procedures for Paying Nonresident Aliens
  • Step 1 – Complete required forms
  • Step 2 – Submit forms to Tax Office
  • Step 3 – Submit DPR and required forms to A/P
step 1 complete required forms
Step 1 – Complete required forms
  • Taxpayer Information Form (Vendor Information
  • Form)
  • Foreign National Information Form (FNIF)
    • Visitor and Student version
    • Copies may be necessary
  • Form W-8BEN
step 2 submit forms to tax office
Step 2 – Submit forms to Tax Office
  • Tax Office will review FNIF for completeness and
  • payment eligibility
  • Copies of immigration documents may be
  • necessary at this point
  • Once reviewed, tax office will let you know if
  • individual is eligible for payment, and if
  • there will be tax withholdings, treaty benefits, etc.
step 3 submit dpr and required forms to a p
Step 3 – Submit DPR and required forms to A/P
  • A/P and any other necessary parties will review
  • DPR and forms will be sent to Tax Office for
  • sign off
best practices
Best Practices
  • As soon as you know you will have a foreign visitor,
  • start the paperwork
    • Don’t start paperwork after the visitor has performed services
    • or you risk not being able to pay the visitor
  • All payments to nonresident aliens should be processed on a DPR
  • All travel guidelines and requirements apply to foreign visitors
    • Accountable plan (nontaxable)
      • Use this for travel portion of trip to make less of the payment taxable
  • Keep the gross-up option in mind
  • NRA rules and regulations are mandated by the IRS, NC Department
  • of Revenue, US Immigration Services, and US Department of
  • Homeland Security
  • Let visitors know we have a tax office if they want to discuss the tax
  • implications of their payment
  • When in doubt, call or email the Tax Office
  • Tax Office Website
    • Tax Guide for NRAs:
  • IRS Publications
    • 15T, Employer’s Tax Guide
    • 515, Withholding on Nonresident Aliens and
    • Foreign Entities
    • 519, US Tax Guide for Aliens
Mary Alice Boyd

Tax Manager

(704) 687-5819

[email protected]

Rebecca Urquhart

Tax Accountant

(704) 687-5742

[email protected]